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Sasken Communication fights for survival as revenue falls again

Since the March quarter of 2009, Sasken’s quarterly revenue has declined by more than a third
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First Published: Thu, Jul 18 2013. 11 16 PM IST
Sasken Communication chairman and CEO Rajiv Mody. Photo:  Hemant Mishra/Mint
Sasken Communication chairman and CEO Rajiv Mody. Photo: Hemant Mishra/Mint
Bangalore: Mid-sized information technology (IT) services provider Sasken Communication Technologies Ltd, which posted another quarter of decline in revenue growth on Thursday, continues to struggle for survival at a time when the country’s $108 billion IT sector faces its slowest period of growth since the 2008 financial meltdown.
In the June quarter, Sasken posted a 23.5% rise in profit after tax to Rs.17.52 crore from the year-ago period, but revenue fell 13% to Rs.115.4 crore.
The Bangalore-based firm, which was once widely seen as one of the most promising Indian IT firms, has seen its share price slump, revenue plunge and top key executives such as Kannankote Srikanth and Hari Iyer quit over the years.
The current attrition rate remains an area of concern. At 37%, it is much higher than the industry average of 15-20%.
According to experts who have tracked Sasken, its problems have been exacerbated by the consolidation in the telecommunications industry, with companies such as Nokia Oyj and Motorola moving to operating systems from the likes of Microsoft Corp. and Google Inc., and also due to the heavy reliance on its top five customers, which contributed more than 60% of its overall revenue. (Google owns Motorola.)
“It was the dream that they chose,” said S. Raghunath, dean (admin) of the Indian Institute of Management (IIM) Bangalore, who specializes in corporate strategy and policy. “If you go back to the very beginning of their worries, it was overdependence on the very large accounts.”
The company declined to comment for this story.
Sasken’s current plight seems to be a far cry from the early 2000s when the company was an investor favourite and seemed destined to become a dominant company among mid-sized IT firms in terms of growth.
The company’s initial public offering (IPO) was a hit, with shares debuting on the Bombay Stock Exchange on 9 September, 2005, at Rs.400, a 54% premium to its offer price of Rs.260. The issue was oversubscribed eight times. By the end of the year, the stock price was at Rs.600.
Nearly a decade after the share sale, the stock is at Rs.123, having plunged to nearly a fifth of the high it touched in late 2005.
“When they got one large client (Nokia), they became complacent and started depending too much on that one client and they created their business around that client. And when the client started performing badly, Sasken also went down,” said Debashish Majumdar, senior research analyst at Way2Wealth Brokers Pvt. Ltd. Sasken’s over-reliance on telecom clients has also come at a time when the sector faces a slowdown, and much larger IT firms such as Infosys Ltd have also struggled to post growth. In its latest quarter, Infosys also highlighted that it was facing significant headwinds in telecom with client spending.
“Pressure on IT spending is visible in the foremost focus on cost reduction and operational efficiency in telecom,” CEO S.D. Shibulal said on an earnings call with analysts after its June quarter results.
Experts also said the waning fortunes of the global semiconductor industry further hampered Sasken’s fortunes. Technology researcher Gartner Inc. said world-wide semiconductor manufacturing equipment spending is projected to decline by 5.5% in 2013.
According to experts, Sasken’s troubles mirror the transformations that the IT industry has witnessed over the years. Like other technology firms around the world, Sasken started out as products firm and then diversified into providing services for the telecom and semiconductor sectors.
However, experts feel Sasken’s diversification into newer areas of technology came a little too late in the day and could not make up for the shortfall it faced from its telecom clients.
“The Nokia revenues have been coming down and will continue to come down and over the next two years. It could possibly become zero,” said Majumdar. “They have to create a robust business model that would make up for the loss of revenue from Nokia— as of now that’s not reflecting on their numbers. Their traction in other businesses is not strong enough to nullify the decline in Nokia revenue.”
In an interview with CNBC TV-18 last year, chairman and CEO Rajiv Mody had conceded that sluggish growth from Nokia would continue to impact its performance in the near term.
Since the March quarter of 2009, Sasken’s quarterly revenue has declined by more than a third and currently stands at Rs.115 crore.
Sasken’s survival also hinges on its ability to attract more top customers, a prospect that looks increasingly unlikely given its current predicament.
“Their revenues have gone down from Rs.700 crores to Rs.400 crores. Why would any investor be interested in the company?” said Majumdar of Way2Wealth.
Last year, after its September quarter, CEO Mody had indicated that the worst for the company may have been over and the company was on its path to better times ahead.
“I must admit that this has been one of the toughest quarters for the entire management team but I think we have taken appropriate actions and you should start seeing the numbers looking better from here on all operating parameters,” Mody said during the post-earnings conference call.
The company’s latest earnings numbers are yet to reflect the improvements that Mody had highlighted. Experts have indicated that the tough times for the company are far from over and could continue for at least another two years.
“It’s not easy to suddenly make a U-turn and expect results right away. It will take at least 3-4 quarters before it starts reflecting on the topline,” said Anirban Dutta, director at Jet Age Securities Pvt. Ltd, referring to the company’s attempts to diversify and broaden client portfolio.
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First Published: Thu, Jul 18 2013. 11 16 PM IST
More Topics: Sasken | telecom | IT | Nokia | Rajiv Mody |